NASDAQ:BIOR
READ THE FULL BIOR RESEARCH REPORT
Update on Programs and Capital Structure
Following the report of third quarter financial and operational results, Biora Therapeutics, Inc. (NASDAQ:BIOR) has made progress on a number of operational and financial fronts. It has received clearance from the FDA to begin the BT-600 clinical trial in ulcerative colitis, secured a new collaboration for the BioJet platform, refinanced and reduced debt outstanding and announced a new patent. The company is in a more capable position entering 2024 than it was just a few months ago.
IND Clearance
Following an investigational new drug (IND) submission in September for the NaviCap BT-600 program, the FDA responded with questions in late October. The data the agency sought for the clinical trial evaluating the safety of tofacitinib delivery to the small intestine for ulcerative colitis (UC) was readily available and resubmitted to the agency a week later. On November 30, the FDA cleared Biora’s IND application for BT-600, allowing the study to begin. The Phase I drug-device combination trial in healthy volunteers is expected to start in December 2023.
BioJet Collaboration Update
Biora announced a new collaboration for its BioJet Systemic Oral Delivery platform. The new agreement provides funding to test the BioJet platform’s ability to achieve bioavailability through oral delivery of the undisclosed collaborator’s molecules to the small intestine in animal models. Based on our conversations with management, we believe that several of the company’s other large pharma relationships are nearing the end of their collaborations and possibly close to securing a partnership which may include upfront payments. BioJet allows for large molecule drugs to be delivered orally, bringing a number of benefits including administration convenience and daily dosing which contrast with the more frequently used infusion method.
Debt Reduction and Capital Raise
Biora has been burdened with convertible debt that it incurred as part of its 2020 financing. In 2023, the company and its investors made a concerted effort to reduce this burden and increase the proportion of equity in its capital structure which is more appropriate for a non-revenue generating research and development company. At the end of 2022, the convertible debt was held on the balance sheet at approximately $128 million. In two transactions, this amount has been reduced to approximately $51 million. The first transaction this year took place in September where investor Athyrium Capital Management increased their equity exposure in exchange for $50 million in principal amount of senior convertible notes. Details of the arrangement were provided in a September 19th press release. A second transaction was announced on December 18th where a net ~$32 million reduction in convertible debt was achieved and new capital was raised.
Details of the transaction were outlined in a Form 8-K filing on December 18th, 2023. $72.5 million of the 7.25% (existing) convertible notes were exchanged for $23.93 million of 11%/13%2 (new) convertible notes due in December 2028. Additionally, 625,000 shares and 5,039,236 exchange warrants with an exercise price of $5.50 were issued to investors exchanging 7.25% notes.
Incremental capital of $16.953 million was also raised through the issuance of convertible senior secured notes due in December 2028. Investors providing this capital were granted 5,084,613 additional warrants with a $5.00 exercise price and 7,352,941 commitment warrants with a $1.36 exercise price.
The debt exchange and new capital raise agreement was made with Athyrium Capital Management, Davidson Kempner Capital Management and Highbridge Capital Management. The deal was scheduled to close on December 19th, 2023.
Other important details include an indenture that requires Biora to maintain minimum liquidity of $4 million and the allowance of certain investors to designate a board observer. Interest payments for the 2028 notes are due on June 1 and December 1 and can be paid either in cash or a combination of cash and shares. Cash payments qualify for an 11% interest rate or a combination of cash and shares receives a 13% rate. The conversion rate for the 2028 notes is 641.02564, equivalent to a conversion price of $1.56.
New Patent Issue Notification
The US Patent and Trademark Office (USPTO) provided an issue notification for a new NaviCap patent to deliver a Janus kinase (JAK) inhibitor to the gastrointestinal tract. As reported, US Patent Application 17/313,339, entitled “Treatment of a Disease of the Gastrointestinal Tract with a JAK Inhibitor and Devices,” will issue as US Patent #11,857,669 on January 2, 2024 following payment of fees. JAK inhibitors such as tofacitinib present a variety of potential side effects such as infections, liver damage, blood cell count changes, blood clots, and pregnancy risks. Patients taking these medications require close monitoring. Direct delivery to the diseased tissue may allow for improved efficacy compared with systemic delivery and reduced side effects through the use of a lower dose.
Valuation Update
We adjust our valuation to reflect capital structure changes related to new convertible debt, equity shares and warrants. Warrants below our target price are assumed to be exercised and issued shares are included in the denominator for our per share valuation. Cash from warrants is added to the balance sheet. The result of the movement from debt to equity had an immaterial impact on our valuation which remains $5.60.
Milestones
➢ NaviCap toxicity study – 1H:23
➢ IND filing for NaviCap (BT-600) – September 2023
➢ Sale of Ann Arbor facility – October 2023
➢ Resubmit NaviCap IND to FDA – October 2023
➢ FDA clearance of IND – November 2023
➢ Convertible debt conversion and reduction – December 2023
➢ Begin Phase I trial for NaviCap – December 2023
➢ BT-600 Phase I final data assessment – 2Q:24
➢ Begin Phase Ib in Active UC for NaviCap – 2H:24
➢ Partnership identity announcement if favorable data – 2024
Therapeutic Pipeline
Summary
Biora has made advances on a number of fronts including clearance to start the BT-600 trial, a new research collaboration, refinancing and capital raise and acknowledgement of new intellectual property by the USPTO. Biora is in a stronger position now that just a few months ago and we are eager to see how the relationships with the large pharmaceutical collaborators mature and early reads from the clinical trial evaluating NaviCap with tofacitinib. We update our model to reflect changes to capital structure which yields an immaterial change ot our valuation. The valuation remains at $5.60 per share.
Key reasons to own Biora shares:
➢ Developing multiple ingestible devices to improve drug delivery to the GI tract
o NaviCap (Targeted Oral Delivery)
▪ Able to deliver to specific site in the colon
▪ Can be modified to release in multiple GI tract treatment sites
o BioJet (Systemic Oral Delivery)
▪ Oral delivery of biologics
▪ Multiple collaborations
➢ Targeting drugs for indications with poor bioavailability
➢ Targeting indications with substantial revenue opportunity
➢ Global rights to intellectual property
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1. Biora Therapeutics December 2023 Corporate Presentation
2. The rate is dependent on whether interest is paid in cash or a combination of cash and shares. Notes will accrue interest at a rate of 11.00% per annum in the case of cash payment and 13.00% in the case of blended payments or payments-in-kind, payable semi-annually in arrears on June 1 and December 1 of each year, with the initial payment on June 1, 2024.
3. Compiled by Zacks analyst using data provided in company SEC filings.
4. Biora Corporate Presentation December 2023
